Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336463 
Year of Publication: 
2025
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 455
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
Announcing a large fiscal stimulus may signal the government's pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and are more noticeable during periods of high economic uncertainty. Analysis of a new dataset of daily stock prices and fiscal news in Japan supports these predictions. We introduce a method to identify fiscal news with different degrees of signaling effects and find that such effects weaken or, in extreme cases, even completely undermine the stabilizing impact of the announcements.
Subjects: 
Fiscal policy
macroeconomic stabilization
uncertainty
imperfect information
JEL: 
E62
E32
D83
Document Type: 
Working Paper

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